Friday, January 31, 2014

I used to work for a quasi governmental organizational where the story told to me was, "To get fired from here, you would have to murder a co-worker, have sex with the dead body and THEN, refuse to go to counseling." Yeah, one of many reasons I remained a contractor, despite their desire to hire me (at half my rate). I bring it up because there is little I wouldn't forgive in the game trade, provided there's clear communication. I want to know you've acknowledged a problem. I want to know you're addressing the problem. I want to know the problem will hopefully not happen again. Simple.

Problems occur, mistakes are made, passive voice is used, and it's all alright, if there's clear communication with your retail partners. Right now Wizards of the Coast is working on a serious Chinese counterfeit Magic card operation. We're talking game trade potential apocalypse here. The word is out. They communicate. I am reassured. Passive voice. Last year, one of the biggest distributors had an entire warehouse essentially laid low by a technical problem. It was an interesting story about permits, lost blue prints, and pallet monkeys. That's cool. Thanks for sharing. My patience has been extended a long way, and even better, because you confided in me, I'm going to defend you and tell your interesting monkey story.

It's not about size, either. Fred Hicks at Evil Hat does a phenomenal job of communicating the various stages of his projects, while keeping it light and enjoyable, rather than the joke the 150+ status posts about Ogre eventually became. Oh ... my ... god ... just make the game! I might not even care a lot about Fred Hick's updates, but he tries so hard to make it fun, I'm probably going to find it entertaining.

In comparison, companies like Konami have zero communication, on top of surprise releases that we often learn about from customers or from visiting big box retailers. One part time guy with an email list could solve that or maybe even a sales rep. I've never been asked to buy anything from this company from which I buy many thousands of dollars of product each year. Konami does a quarter of a billion dollars of sales each year. Talk to your retail partners.

Of course, those speaking need to be empowered with information to communicate. There are a couple companies where the sales reps are treated like mushrooms, kept in the dark and fed crap, so that there's no chance useful (secret) information can be released. It's why I have to learn about Games Workshop releases from Bell of Lost Souls. My rep simply doesn''t know and couldn't tell me something if he wanted to. My sales reps have always been great guys, but they're out of the loop.

Wednesday, January 22, 2014

The future of the game trade, the future of things really, is disintermediation. Disintermediation refers to cutting out the middle man, which retailers have been content to be for thousands of years. Technologies that disintermediate sell direct to consumers, without the need for anyone in between. It's efficient. It's the future.

PDFs were a godsend to small publishers, but they also, to a great extent, cut out the retailer. Sure, the market grew, as there are PDF only publishers, but a big slice of the market was eliminated, and probably more importantly, publishers were often given an edge selling electronic products direct to consumers. Whether you're talking Paizo with PDFs given out as part of their subscriptions (and very clearly NOT to retailers) or Wizards of the Coast with their subscription based character management system, those companies found ways to sell direct to consumers, and those companies right there are most of RPGs when you look at market share. There are projects like Bits and Mortar that attempt to level the playing field, but it's tiny in comparison.

3D printing is the next wave of disintermediation that will effect miniature gaming. Some companies will become like the PDF publishers of RPGs and just sell you a template to print models on your printer. But you can easily imagine a Games Workshop, if they decide to become innovative in their next incarnation, giving out a template when you buy a box of models from them, but only if you buy direct like Paizo does with their subscriptions. Some retailers in other countries report their players are already playing with 3D printed forgeries from China. Like the PDF market, small miniature game companies will probably disappear from game store shelves as they go electronic, while big publishers will find ways to disintermediate retailers through electronic offerings.

Then there's Kickstarter, which I've talked about extensively, which takes the sizzle from our steak, removing a lot of the buzz we get from selling stuff, but not so much profit. At $55 million a year in sales in a $1.25 billion dollar industry, Kickstarter is more an up and coming disintermediator, but it's having a big effect on how we do business.

The Internet, is of course, the 500 pound disintermediator in the room. Market share is still small around 5%, but it's growing larger at a fast pace, around 10% a year. Amazon owns 25% of Internet market share and they're the 7th biggest retailer in America. The rush to the bottom, the pressure to open your own Internet store, or sell via Amazon, is very strong in the game trade, but it's mostly a diversion or a way to overcome poor demographics, i.e., low sales volume caused by your small population base.

The solution to disintermediation is to move away from being the intermediator, if that's even a word. Find ways to offer goods and services in a primary manner, rather than as a middle man. We will always sell stuff, but it's clear that being an enormous pro shop with a tiny bowling alley in the back in which we use volunteers to operate is not quite right. I've often used the expression of the tail wagging the dog, when referring to events, a necessary marketing evil to drive sales of stuff. It's a valid model if you accept you're the middle man.

Getting beyond disintermediation requires we offer services and goods that can't be taken from us. It requires that our events be far, far better than what can be done at home. It requires they be monetized, like a bowling alley, and that they're clean, relatively comfortable and well lit, like a bowling alley, and that professional services, leagues, and experts are constantly available, like a bowling alley. Retail can't be shoved in a small section of our business, like a bowling alley pro shop, but the alley itself needs more respect and support. It might require well organized volunteers as a store priority, something few stores do well, or it might require paid staff to exclusively run events. There are good stores that do both, but they are in the minority and we need to learn more from them.

Getting beyond disintermediation can also include consumable goods and services. The coffee shop model, which I've scoffed at a number of times, has turned out to be a winner, if you can run a coffee shop. Most game store owners are not professional retailers to begin with, certainly not entrepreneurs, so this is beyond their capabilities. However, for veterans, that add on business is a model to consider. We have many stores now with the coffee shop, the pub, the malt shop, or something similar. Endgame in Oakland is planning a game cafe model that includes author signings and musical performances. They're not just offering muffins to gamers, they're offering more reasons to visit them.

This is on my mind as we embark on a big store expansion project that will provide us a couple thousand square feet for our events. Avoiding disintermediation will be in the back of my mind in each decision, including better chairs, hookups for monitors and sound, and even the choice of flooring. The ability to be a valid social venue needs to be improved. One litmus test on my mind is the question: Could you have a Superbowl party that rivaled someones living room, albeit with space to play board games or something similar? One thing I've had kill a business in the past is rapid change that exceeds resources available. We want to make sure we're building for the future, not just for the right now. A misstep with resources will tie up plans for years and can kill an existing business. I think we know where we want to be, but it's more a mindset than a muffin shop.

Saturday, January 18, 2014

When Games Workshop's stock price fell 25% this week, my first reaction was "Good!"

It's not a "good" that comes from hate, or glee, it's a response to a wayward sibling. It's like my brother was just arrested for narcotics possession after years of self abuse and broken trust. Maybe now he'll see the light. Maybe now he'll stop abusing himself and those who love him. You don't expect your wayward brother to become a saint, you just hope his self destructive actions will abate for a time, and perhaps he'll mature with age and time to think.

The analogy is spot on, when you think about it. If you're going to be in the game trade, if you're going to deal with these people every year for the rest of your working life, you can't slam a lot of doors. You can't say, "Games Workshop, you're a bad company and I won't ever deal with you again!" Games Workshop is your brother. The family is incredibly dysfunctional, but it's the only family you have, unless you want to sell doll houses or sporting goods. So any glee at the downfall of a fallen relative is best reserved for the hope they'll change bad behavior.

Speaking of change, here's a quote to ponder from the same day:

When
you see a stock down 30% in a single day you don't necessarily rush to
buy it," warns Brian Sozzi, CEO and chief equities strategist at Belus
Capital Advisors. "The market is trying to tell you something and you
should listen.

Granted, Best Buy's management remains confident about its strategy,
as do a number of analysts. But until Best Buy can prove it is on the
right track, investors should steer clear.

This is your broader family not exactly in a hurry to chip in bail money for wayward brother, who is clearly on a path to self destruction. A company with strong leadership needs to address the concerns of their stake holders, and like Best Buy, the Games Workshop restructuring is not giving those people hope they'll change. Their strategy to me sounds like rearranging the deck chairs on the Titanic, rather than avoiding hitting yet another ice berg.

I could tell you why I think Games Workshop is on a path to self destruction and it's basically pricing. They raised their prices beyond the means of their clientele, and then the next year, they raised them again to where most of our customers can no longer afford the game. That means retailers like me start clearancing out dead inventory, which reduces my sales, which eventually leads to more price increases, more clearances, and suddenly my full line 40K inventory is a more "core plus" strategy of stuff I have to have and some new things.

It's not a zero sum game though (well, actually it's exactly a zero sum game), and we've successfully transitioned our resources to my other brother up in Seattle. I don't wish bad things on Games Workshop, but I know from experience, that brother only comes to positive realizations when he's spent some time in the slammer. Don't let the opportunity pass you by, my brother.

Thursday, January 16, 2014

We're opting for what they call "architectural metal mesh," technically an interior fencing material that will go from top to bottom facing outward towards the store. The actual mesh style hasn't been selected yet, so I can't tell you exactly what it looks like, but it has distinct advantages over the glass design we looked at. It's cheaper, easier to keep clean, has better visibility and less of a cramped feeling in areas that now have lower ceilings. Most important, it has excellent air flow. I suppose it's also safer than the usual balcony you would see installed in this scenario. And yes, the staircase will have railings.

What's the seating? Why not make it even bigger?

The space will be rated by the fire marshal for 123 people, which is significantly more than we can seat now. The formula for building a mezzanine, which is what this is technically called, is no more than one third of the bottom space. You can finagle that number by adding an office, but not by much. In addition, we are required to have restrooms -- many restrooms -- to accommodate the crowd. The restrooms are the biggest expense of the project and eat into square footage significantly.

Are you losing retail space?

A little bit. To hit the target number, I've given up some of our retail space for the stairs and landing. We're losing about 10% of our retail space, notably the back wall. We'll be re-designing the store layout to make the shift. The front right portion of the store (as you walk in) is poorly utilized, so we'll see our board games better take over that spot. Puzzles will likely be condensed down to one, spine out shelf. Toys, what's left of them, will be gone. Overall, inventory values will stay the same. As an FYI, we generally increase our inventory 5-10% each year.

I don't see an elevator, where is that?

Doing some research beforehand, we successfully argued an ADA argument known as "equivalent facilitation." Equivalent facilitation means if I have a movie theater, for example, I need to facilitate a wheelchair bound person to see the movie, but I don't need to get them up on the balcony to do it. Since we have game space on the top and bottom levels, we have equivalent facilitation, so an elevator is not required. However, and this is big, any event going on in the store will need to be cognizant of this rule, so if you have someone who needs handicapped access, the event must make room for them on the bottom floor. Events and event coordinators will need to be flexible in this regard.

You have such a tiny office!

There is both an office you can see in the front, and a small storeroom for event materials on the top floor. But yes, we're losing significant office and storage space in this layout. The office is the least efficient part of a retail store and shrinking it down in exchange for generating revenue is a good trade off. We will have storage issues, for sure. Nobody actually works in our office, so a dedicated space is kind of a waste.

Does this mean you'll have more open gaming?

No. During the day, the top level will be closed, as we don't have staff to supervise it. During the evening, we'll have extra staff and additional standard events scheduled for the top floor. The goal, for us, besides an ever increasing community, is to be able to generate additional revenue from the space so it pays for itself. There are a lot of things that investment could have done, including a whole other store somewhere else, so it needs to pull its weight.

When will it be finished?

Good question, as the project moves forward, there could be snags along the way. Right now we're about to begin the engineer's evaluation. That will look at HVAC capacity, sprinkler systems, structural beams, and re-routing various equipment in the ceiling. That report will inform the architect's drawings, which will then need final approval and permitting from the city (the city has initially approved the concept). There is a loan process at some point throughout this and in the end construction, which will last 3-4 weeks, with no store closure and probably a week of game center closure as the top floor is build. I'm hoping for Summer.

Sunday, January 12, 2014

THE SETUP: Joe is a game store owner with 30 days of cash left before he has to
close his store for good. He started The Angry Space Marine three years ago, after a career in finance. Joe thought he could run a game store better than his competitors, but
he soon grew bored. He claims to hate managing people and spends his time playing 40K in the back
room.

His manager, Cindy, is untrained, loves board games and
is good with the customers, but Joe often argues with her and won't let her make decisions. Joe
hired her so he could have more fun playing 40K.

The inventory is
decent, thanks to Cindy's recommendations, but there's a big problem
with the 40K inventory. Joe has five of every 40K model in production,
because he "doesn't want to be out," despite 40K sales flagging, likely
due to poor customer service and Joe hogging the tables in the back. Joe was smart
enough to get a good property lease, a common deal breaker that prevents
a turn around and he's on good terms with all his distributors, thanks to smart money management. He went deep into debt to do this, and he's at the end of his credit limits.

ENTER BOB Meeples, game store expert. Bob talks
to Joe. Joe blames everyone for not doing their job. Bob yells at Joe
for a while for not manning up, asking him if he wants to run a store or
play games. Bob can't seem to decide. Bob reads Joe all his bad Yelp review and
Joe responds angrily, telling Bob his opinion of Yelp. Joe blames
Cindy, his manager, for not running the store properly.

Cindy,
the manager, talks too long with the customers and tends to take a copy
of each new board game home to learn to play it. Bob intervenes, tells
Cindy not to talk to customers for so long and informs her she can't
play every game in the store. Cindy gets angry, insults Bob's hat, and
storms out. Other staff continue to mope about, talk down to customers,
and act confused about what to do. Employee Steve tells a customer his
game is stupid in front of Bob and Bob yells at him for this after the
customer leaves.

THE TURNAROUND: Bob calls a meeting for
everyone the next morning. Steve doesn't show, but everyone else is
there bright and early. Bob teaches them how to greet customers,
suggestive sell to be helpful (Joe argues it's deceptive, but is taught
how he's wrong), how to effectively shew away friends who waste their
time, and how much more enjoyable the day can be when everyone knows
what they're doing and customers are happy.

Joe is hating every
minute of this training and can't understand why he has to be nice to
customers. HE'S got the games. They should be nice to him! Cindy is
rising to the occasion and is nailing customer service. She's good at it
and just needed a little direction. Steve shows up as training is
ending and Bob fires him. Steve storms out in a stream of profanity. Joe
is upset because Steve was his 40K buddy.

THE SOLUTION: Bob
Meeples has a heart to heart with Joe and convinces him to step aside
and let Cindy manage the store, giving her the power to make important
decisions, including purchasing and staffing. Bob shows Cindy the new
shrink wrap machine, so she can open any game she wants to read the
rules or show to customers.

Bob then shows Cindy the inventory
changes, with most of the 40K overstock gone, traded to a new store,
and the money used to increase the board game and CCG inventory, areas
of growth starved for cash by Joe. How does Bob know this?

Bob
reveals the fancy new Point of Sale Machine. Joe's cash register and
notepad scheme wasn't cutting it. Bob shows some fancy
reports showing the store was losing sales because turns were too
high in board games and CCGs. He also shows how their cost of goods was
75% thanks to Cindy's taking home of product. Their target is now 55%,
which they'll track daily with the POS. Joe gets annoyed, saying that if he wanted to crunch numbers, he would have stayed in finance.

Finally, the new sign is revealed, with the new business name Space For Games, with a sci fi theme that attempts to emphasize community and inclusion. Joe is fuming, but says nothing.

Joe goes back to work
part-time in finance and spends half his day in the back playing 40K.
Cindy shines. And in a ridiculous twist, Joe makes Cindy hire back
Steve, whose still an asshat, but Cindy finds a use for him away from
customers. Their sales are up 20% and their expenses are way down thanks
to Joe not drawing a paycheck and Cindy not taking home product. Joe swears he'll change the name back when he can save up enough money for a new sign.

Friday, January 3, 2014

The big problem with the game trade, the overwhelming, soul crushing, poverty inducer, is retailers are seen as a necessary evil by publishers, and in some cases, an unnecessary evil. They wish us to embrace their game, build communities, but they don't want to allow us to sell their game unhindered. It is always their game. They are always their customers. Unlike many other trades, they interfere with us directly, in a variety of ways, which undermines our ability to do our jobs. Here are some of the most common models for this:

Control Freak. In this model, retailers are not trusted to do their job. A big aspect of this is the MSRP, the manufacturers suggested retail price. When you put an MSRP on every, single, product, combined with reduced margins, you hamstring a retailer by dictating the narrow range of their business model.

For example, the toy trade has "net" costs, or the amount you pay for the product, and no MSRP. You sell the game for what you want. You could "keystone" it and sell it for twice that, getting a 50% margin, which might be baseline. You could sell it for less than keystone and try for volume using a discount model, and most importantly, key in this discussion, you can sell it for over keystone and try for a boutique model, possibly in a higher income area. Your store will have higher costs, but you can cover them with your higher margin sales.

In the toy trade, there is a range of prices, both in brick and mortar and online and a range of business models for selling that product. The game trade's combination of MSRP and dictated discounts means we're squeezed on both ends, narrowing the potential business model. A game store business model is necessarily in a narrow window, fairly low rent band of American retail. There is no possibility of moving up without changing your product mix beyond hobby games. MSRP is why game stores are low rent. Net pricing is the solution.

Control Freaks also include things like tight event restrictions. Companies like Pokemon USA, and Privateer Press want their organizers to be independent of stores, and in the case of Pokemon, special events are meant to be as independent from the retailer as humanly possible, including collection of fees. Konami's new tournament format is so onerous, that it was the final straw with our Yugioh community, a community we've asked to disband. We talked about doing a big, regional Privateer Press event yesterday, but we can't pay our Press Ganger to do it and employees can't be Press Gangers, so it requires a true volunteer to do this, or less qualified employees. I think we'll pass on that. These companies don't allow retailers the creative control they need to run their businesses successfully.

Cream off the Top. In this model, retailers are allowed to sell product, but the intent is for the publisher to get the easy money, the cream off the top, or low hanging fruit. Games Workshop does this with their stores, which are said to serve beginners, but as they know, the beginners spend twice as much money as the veteran. The new player spends about $1000, their first year, compared to around $500 for the veteran player, at least before they hit a critical mass.

GW takes the cream and sends veterans, who spend less and have more complicated needs, to their independent retailers. By all accounts, they place their new retail stores in areas where retailers have been successful. GW independent retailers are a location service for new GW retail stores.

Paizo also does this with their subscription model, which is why there's so much hostility about carrying Pathfinder in game stores. The "alpha" players subscribe or otherwise buy online, which cuts out the game store. Unless you have a large community, you can't sell Pathfinder as a retailer, because you don't get enough critical mass to overcome competition from Paizo itself, who also has a full online discount game store to back up their product. Organized Play for Pathfinder Society is also a spotting service of sorts, identifying communities where the game is strong for the publisher.

Games Workshop has taken this further recently, significantly reducing key (not core) inventory from game store shelves and enticing customers to buy direct from them instead. We can still get these models, but at a margin that discourages us from stocking them regularly. They've also come out with product sold only on their website, which also leads to customers buying direct. Once you split sales, your turns begin to falter and the line stops performing at adequate levels. This type of behavior wouldn't be tolerated in many trades, but game store owners do.

Direct Disintermediation. The biggest of these is Kickstarter, a direct sales channel for both established and new publishers. Granted, there are plenty of small publishers that use this model, which really just supplants other channels in the game trade. Much of this product is unsellable at retail, so I don't begrudge that. It's when a company uses Kickstarter as their new pre-order model that they disintermediate game stores.

The biggest example is Reaper Miniatures with their Bones product line. Their second run of bones is clearly just a pre-order system for direct sales to customers. I would like to think carrying their slow selling line of metal figures for years would result in some form of loyalty to the retailer.

I was recently contacted by a representative from one of my favorite authors, hoping we could run some organized play for their far future fantasy role playing game in our store. All game products are first sold via Kickstarter. I regularly have the "this game is so good" discussion with my regulars, who tell me I am right, and that they already own this product. So why in the world would I want to run organized play for this game that I essentially don't sell? What starts on Kickstarter can stay on Kickstarter.

Direct Disintermediation also includes the various online company stores and heavy sales of new releases at conventions. Some stores in the Midwest truly dread Gencon, as it sucks up all the regional sales of new Summer releases for an entire month. Others find ways to leverage Gencon, but most are hurt pretty bad by publishers selling direct to customers. They tell us they have to do this to afford to go to the convention, because apparently there is no money for a marketing budget.

It's so uncommon for a game publisher to not disintemediate their retailers, that you can count the big ones on one hand, if not a couple fingers. Wizards of the Coast probably stands head and shoulders above the others, although lately with their D&D organized play, they've dipped their toe in the water.

Until We're Big Enough. Finally, the goal of many publishers is to reach game trade nirvana and sell to mass market retailers. Companies like PSI (really, just PSI) rep the game trade to Target, Barnes & Noble, Gamestop, and other big retailers, putting hobby games in front of millions of non gamers, but also under cutting game stores who work every day to promote these games. We're told this is the only way the trade can grow outside our little ghetto, which is kind of ironic considering the many kicks to the balls retailers receive on a daily basis.

In some cases, the game disappears entirely into the hands of a mass market publisher, like the selling out of Apples to Apples and Blokus to Mattel, an example of the game trade making a game popular enough to transcend it. I missed these games during the holidays.

How We Do It. You could despair as a retailer, especially if you're new or having a hard time. You could curse the darkness. You could focus on everything wrong and nothing that's going right. However, that's not a way to succeed. The way forward is a stumbling, two steps forward, one step back. It's keeping a positive outlook, maintaining stability in your business, and doing what small business does well, quick adaptation. If you're growing, you're winning, and there's not much more than that.

When a company behaves badly, they hurt us. When they behave really badly, they give us no choice but to drop them from the mix. The key is diversification so that nobody, I mean nobody, is so big, they call the shots. Not Wizards of the Coast, not Games Workshop and certainly not the completely tone deaf Konami. We switch things up, we drop what doesn't work, we support what does, until it doesn't.

You know what? This is really not good for the publishers. It alienates the customers. This is exactly why they think we're dispensable, a necessary evil. But it's a situation of their own making. You can do it. You can succeed, you just have to be nimble and understand: these guys do not have your interest at heart. They are not your partners. They are your competitors too.

Enjoy your games. Marvel at the creativity. Forgive the publisher like
you would that relative you're always bailing out of jail or loaning
money you'll never get back. It's the frog and the scorpion parable. The frog gives the
scorpion a ride on its back across the river and half way across, the
scorpion stings the frog. Why does the scorpion do this, even though the frog has its best interest in mind? Doesn't the scorpion know they'll both die? The scorpion stings the frog because it's in his nature. We have no choice but to be trusting frogs. You might as well enjoy the water.